Senate President Advocates National Loan Restructuring Program for Pension System
Posted On: Jul 29, 2015
NJTV News - Washington bailed out the banking industry and rescued the auto industry with massive cash infusions. And now Senate President Steve Sweeney says the federal government should help save the state’s sinking pension plans with a trillion-dollar national loan restructuring program.
“Let’s be clear. This is not a bailout. Or a handout. It’s a loan program, with its biggest winners being the taxpayers because they would pay less in future pension payments and avoid cuts in essential services,” Sweeney said.
In New Jersey, the unfunded pension crisis flared into political rallies and court battles. But Sweeney says it’s a national problem: more than two dozen states have unfunded liabilities of over $10 billion. At $51 billion, New Jersey’s pension hole is the third largest, and state lawmakers lately have deadlocked on how to raise enough cash to fill that hole, after Gov. Chris Christie again did not make the full pension payment this fiscal year.
“When a state goes and defaults, who’s gonna come in? The federal government. And at that point, it’ll be a bailout. We don’t want a bailout. We think a loan program is fair and is equitable for everyone,” Sweeney said.
Under Sweeney’s proposal, states would get voter approval to borrow the money they need from the Federal Reserve — at 1 percent interest — and pay it back over 30 years. Each state would also set a constitutional requirement to fully fund its pension system going forward — no more skipped or skinny payments. If New Jersey borrowed $50 billion it could cut its pension payments in half, not reduce benefits and still keep the pension system fiscally healthy, Sweeney says.
“It’s simple math, it’s simple math, and it should work,” he said.
Major unions welcomed at least exploring the concept, especially since some pensions face insolvency within a decade.
“In the near term, if you put $50 billion into the pension system, you’ve solved their pension problem right away. Takes the concern away from a lot of retirees I know now and people looking to retire,” said NJEA President Wendell Steinhauer.
“Public sector pension plans in the country should be considered too big to fail in the same way banks are considered too big to fail. And this would be a way of getting a large amount of money into the plan, stabilizing it. And then you’re paying it back at a very, very low rate,” said CWA NJ Director Hetty Rosenstein.
In a statement, the governor’s office panned the plan, noting “…an NJEA member retiring in just a few years contributes just $126,000 to their pension and health benefit costs over 30 years and takes out $2.4 million in benefits. The math does not work at all. That is the fundamental problem that needs to be solved.”
Sweeney’s office has reached out to New Jersey’s congressional delegation. He says Congressman Donald Norcross has agreed to sponsor the federal enabling legislation. The Senate president will now shop the idea around to lawmakers across the country.